New Delhi, May 17 (KNN) The scheme was announced by the Government of India to provide the much needed liquidities to MSMEs to overcome the disruptions in the business process under the Covid -19 pandemic conditions.

The Emergency Credit Line Guarantee Scheme (ECLGS) provides 100% guarantee coverage on eligible loan to eligible MSMEs. MSMEs for the purpose of this Scheme will include MSMEs/ Business Enterprises which are constituted as Proprietorships, Partnerships, Registered Companies, Trusts and Limited Liability Partnerships (LLPs), borrowers under MUDRA scheme (PMMY) and loans to individuals for business purpose are also eligible.

The original scheme [ECLGS 1.0] announced on May 20, provided for additional loan maximum to the extent of 20% of outstanding loan on the book of any MSME or individual borrower for business with maximum outstanding loan of Rs. 50 Crore.

The additional loan may be as Term Loan or Working Capital or both. Non –Fund based loans are not allowed.

The crucial date for determining the total outstanding bank loan will be Feb. 29, 2020, for the purpose of determining the additional loan under the ECLGS. Off balance sheet and non –fund based exposures will not be considered for total outstanding loan.

The existing Borrowers of any scheduled bank, eligible financial institutions and eligible non-banking financial institutions can avail the facility. MSME Borrowers of Regional Rural Banks are also eligible. New borrowers after the scheme launching date, viz., May 23, 2020 are not eligible.

This is a pre-approved loan. An offer will go out from the lender to the eligible borrowers for a preapproved loan which the borrower may choose to accept. If the MSME accepts the offer, it will be required to complete requisite documentation. Thus, an ‘opt-out’ option will be provided to eligible borrowers under the Scheme, i.e., if the borrower is not interested in availing the loan, he/she may indicate accordingly.

The scheme is open from May 23, 2020 to June 30, 2021, i. e. the additional loan under the scheme are to be sanctioned within that window. The disbursement to be availed by Sept. 30 2021.

The borrower account must be classified as regular, SMA-0 or SMA-1 as on 29.2.2020, i.e. accounts with overdue of more than 60 days are ineligible for loan under ECLGS.

Original loan restructured under the present RBI scheme, as per which the account need not be downgraded or classified as NPA, will also be eligible for facility under ECLGS.

The normal repayment period for the loan is 4 years with moratorium period of 1 year.

As the Loan is fully guaranteed, by the National Credit Guarantee Corporation, no additional collateral, surety or security. Second charge on the assets created with the existing credit facilities will be sufficient.

Maximum interest under the scheme will be 9.25% per annum for loan sanctioned by banks. NBFCs may charge upto 14% per annum.

Unlike the existing credit guarantee scheme under CGTMSE, no guarantee fee is payable under ECLGS. Also the lending agency cannot charge any processing fee.

A loan account not classified as MSME loan by the lending agency or not having Udyog Aadhar registration is also eligible for loan under the scheme, provided it satisfies other criteria.

An enterprise having loan account with more than one lending agency may avail additional loan under the scheme, under the guidelines from each lender, or on the total loan from one lender subject to issue of no objection certificate by all other lenders.

A special window of the scheme [ECLGS 2.0] operates for MSMEs accounts in the 26 sectors identified by the Kamath Committee on Resolution Framework, where accounts with outstanding loan upto the ceiling of Rs. 500 crore are also eligible for additional loan to the extent of 20% of the outstanding loan under the scheme.

While loan under ECLGS 1.0 are fund based, under ECLGS 2.0 both fund and non- fund based loan can be sanctioned, other conditions remaining same.

Loan under ECLGS 2.0 are not available to individual borrowers.

The 26 sectors eligible for enhanced  loan  under ECLGS 2.0  are power, construction, iron and steel manufacturing, roads, real estate, trading wholesale, textiles, chemicals, consumer durables/FMCG, non-ferrous metals, pharma, logistics, gems and jewellery, cement, auto components, hotels, mining, plastic products manufacturing, automobile manufacturing, auto dealership, aviation, sugar, port and port services, shipping, building materials and corporate retail.

The repayment period for enterprises eligible under ECLGS 2.0 is 5 years with moratorium period of 1 year.

Subsequently, ECLGS 3.0 was announced by the Government  for providing 100% guarantee coverage against extension of eligible credit to  existing borrowers in the Hospitality sector, Travel & Tourism sector and Leisure & Sporting sector, whose total fund based outstanding across all borrowers and days past due as on 29.02.2020 was not exceeding Rs.500 crore and upto 60 days respectively.

Sectors eligible under ECLGS 3.0 are allowed additional loan upto 40% of the loan outstanding on the crucial date, viz., Feb. 29, 2020, other conditionalities remaining the same like ECLGS 1.0.

The repayment period for enterprises eligible under ECLGS 3.0 is 6 years with moratorium period of 1 year.

A few questions remain unanswered though:

The loan under ECLGS is available for both term loan and working capital. The tenure of the loan has also been specified between 4 to 6 years. While term loans   always have fixed maturity, working capital loans have some perpetuity as it continue in cycles. So how the working capital component may be paid back without disturbing the business operations?

For the identified 26 sectors, both fund and non-fund based loans are   available. The loans under ECLGS are fully guaranteed and the loan amount is refinanced by RBI at Repo rate. While the rate of interest for fund based loans has been fixed, why the commission for non-fund based loans has been left at the discretion of the Banker. (KNN/DB)